Deregulation Expected to Jolt Electric Utilities

MANCHESTER, N.H. —  Tina Parsons pulled the plug on her hometown electric company, the one just a block down Elm Street from City Hall where she works as a revenue administrator.

More than 220 homes and businesses and part of the city itself now get their electricity from a company in Vermont. Each resident saves about $250 a year, said Randy Sherman, who helped Parsons negotiate the deal.

Along the Connecticut River in western New Hampshire, retired printer George Hynes came through the New England winter with a little more money in his pocket. He, too, abandoned his local power company in favor of a New York broker who gets electricity from a plant in Ohio.

Such shopping around for power is unheard of across most of the country, but that will change. The $200-billion electricity industry is following railroads, airlines and phone companies down the path of deregulation.

The fight over competition, which could rage for years, will reshape the way Americans buy electric power, and the way companies sell it.

Supporters say competition among electric utilities will allow consumers to save up to 20% of what they now pay to light homes, stores and factories.

Opponents say some companies will be driven out of business, and some stockholders will suffer losses. They also worry that poor customers may be left in the dark.

Hynes, 73, who lives with his wife on a fixed income in Meriden, N.H., is already counting the savings.

“My bills in winter would run $78 or $80. . . . This past winter the biggest bill was $62” a month, he said. He studied offers from 11 companies, including one who offered him a bird feeder worth $18, before choosing his new supplier.

In New Hampshire, where license plates declare “Live Free or Die,” about 17,000 people were told to do something rebellious last year: ditch their local utility and shop around for power.

Doubters note that the New Hampshire experiment--which expands statewide next year--may exaggerate savings because of a 10% subsidy to boost participation. But in New England, California and New York, where people pay more to light their homes than just about anyone east of Hawaii, any talk of lower rates is welcome.

Illinois and Massachusetts are testing competition. A few states are moving to full-scale programs soon, including California, Rhode Island, New Hampshire, Massachusetts and Pennsylvania.

In Washington, utilities are fighting among themselves over whether Congress should require national competition or allow states to decide. Some companies want to protect their home turf, while others see the opportunities for new business.

According to congressional disclosure reports, more than $32 million has been spent to lobby on the issue so far and millions more are going for research, polling, public relations and grass-roots activities.

No matter what Congress does, most utility executives believe competition is inevitable and many utilities are trying establish themselves as national players.

“Five years from now customers could well be buying their power from companies that aren’t even in business today,” said Gary Simon, a utility expert at Cambridge Energy Research Associates in Boston.

Other companies that are in business today may be driven to ruin, a prospect that worries shareholders who have money in what was once considered a stable investment.

“The life savings of many investors may be wiped out,” warned Bill Steinmeier, a Missouri lawyer and spokesman for a shareholders’ group.

But Jeffrey Skilling, president of Enron, a Houston-based energy giant, said consumer savings of up to $80 billion a year will outweigh any stockholder problems.

“No one can seriously defend that [current] system anymore. It is inefficient. It is unnecessarily costly. It stifles innovation. It forces consumers to pay high rates while large industrial customers get special rates,” he argued.

Even with competition, industrial users will still do better than residential customers. A recent agreement aimed at ushering in competition in New York guaranteed 25% savings for industrial users, but provided only modest cuts in residential rates.

Some skeptics remember how small towns lost airline service after deregulation and wonder if electricity competition might bring more of the same.

Advocates for the poor also argue that unless government steps in, utilities will have no reason to maintain assistance programs for low-income users.

In Kentucky and in the Pacific Northwest, many consumer advocates and state regulators question why change is needed. Their electricity already is the cheapest in the country.

Nancy Hirsh, an Oregon environmentalist, is concerned that more electricity will mean more water being pushed through government dams and more salmon deaths if Bonneville Power revs up its turbines to ship more electricity to California.

At recent congressional hearings, Linda Breathitt, head of the Kentucky Public Service Commission, reflected the views of many low-cost states: “We don’t want to mess things up.”

The cost of one kilowatt hour of electricity averaged 6.9 cents in the United States last year, ranging from just over 4 cents in Kentucky to 14 cents in Hawaii.

The wide range helped create the push for competition.

“Customers are beginning to wake up to these price differentials,” says John Anderson, a Washington lobbyist representing the country’s biggest industrial users.

Eventually, many industry analysts predict, competition will spawn huge energy companies that will sell their “brand” of electricity nationwide, much as oil companies now sell gasoline. Local utilities will be distributors.